Shares of Milacron Holdings Corp. MCRN have rallied 33% year to date, driven by expected savings from organizational redesign and cost reduction initiatives, pending merger with Hillenbrand Inc HI, and ongoing momentum in its segments and new products. Notably, the industry has rallied 11% over the same time frame.
Milacron, a Zacks Rank #3 (Hold) stock, has a market cap of roughly $6.9 billion. The company has expected long-term earnings per share growth rate of 4.65%.
Let’s delve deeper and analyze the reasons behind the company’s impressive price performance and find out if there is room for further appreciation:
Upbeat 2019 Outlook Despite Tariffs
Milacron projects sales to decline 3-4% in 2019, including an anticipated headwind of 1% from foreign currency translation. Despite an expected drop in revenues, adjusted EBITDA margin is forecast to be 17.5-18% in 2019.
The company remains optimistic about mitigating the impact of tariffs by focusing on pricing actions, negotiations with existing vendors and making supply chain modifications. Milacron’s organizational redesign and cost-reduction initiatives will result in margin expansion.
Pending Merger With Hillenbrand
Hillenbrand will acquire Milacron in a cash-and-stock transaction worth $2 billion, including Milacron’s net debt of $686 million. It is expected to close in the first calendar-quarter of 2020. Upon the deal’s closure, Hillenbrand shareholders will own 84% of the combined company, while Milacron will own the balance 16%.
The new entity will expand product offerings with an extended reach in end markets, such as automotive, consumer packaging, construction, medical, recycling and electronics. Moreover, the company’s technologies will enable the new entity to offer plastic processing solutions, including extrusion, injection molding and hot runner systems. The transaction is anticipated to deliver double-digit adjusted EPS, accretion in the first year following the closing.
Segments Poised for Growth
The Advanced Plastic Processing Technologies (APPT) segment will be supported by increased demand in the plastic processing machinery industry driven by the overall expected rise in plastic processing, increasing equipment age and continuing advances in technology.
In the Melt Delivery and Control Systems (MDCS) segment, the hot-runner market is likely to grow faster than the overall global economy based on macro-economic drivers involving product life cycles, demographics, technology conversion and greater utilization of plastic.
In the fluids segment, demand for industrial fluids is closely tied to demand for metal products, which are produced on metalworking machinery through cutting, stamping and other processes. As industrial production and demand for metalworking machinery grows, manufacturers will require increased amounts of high-quality coolants, lubricants and cleaners to maximize productivity, and extend the life of equipment and tooling. Market trends indicate elevated demand for technology fluids owing to environmental and health concerns.
Focus on New Products to Sustain Growth
Demand for a diverse range of finished plastic products is on the rise in many markets, triggered by global population growth, urbanization and improved lifestyle in emerging markets. The company is well positioned to capitalize on this growth. It has made significant investments in China and India, considering the projected growth rates of plastic business in these markets.
Revenue growth will be driven by market growth in key segments, expansion of product lines, gaining share in the hot runners market, increasing consumables business and launch of new products. New products are focused on strengthening the current market position, and expansion of addressable market through the introduction of technology that displaces other materials, primarily metal and glass.
Stocks to Consider
A few better-ranked stocks in the Industrial Products sector are Albany International Corporation AIN and Avery Dennison Corporation AVY, both of which carry a Zacks Rank of 2 (Buy), currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Albany International has an estimated earnings growth rate of 32.3% for 2019. The company’s shares have been up 8.3% in the past year.
Avery Dennison has an expected earnings growth rate of 8.42% for the ongoing year. The stock has appreciated 7% over the past year.
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